And when dreams deceive our wandering eyes in the heavy slumber
of night, and under the spade the earth yields gold to the light of
day: our greedy hands finger the spoil and snatch at the treasure,
sweat too runs down our face, and a deep fear grips our heart that
maybe someone will shake out our laden bosom, where he knows the
gold is hid: soon, when these pleasures flee from the brain
they mocked, and the true shape of things comes back, our mind
is eager for what is lost, and moves with all its force among
the shadows of the past ...

Satyricon of Petronius Arbiter,circa A.D. 50

The propensity to barter and exchange is an innate human
characteristic. An inclination to divine the future is another
deeply ingrained trait. Together they comprise the act of
financial speculation. "All life is speculation," declared the celebrated
nineteenth-century American trader James R. Keene, "the
spirit of speculation is born with men." For the earliest known historical
cases of speculation we must turn to ancient Rome during
the Republic of the second century B.C. By this date, the Roman
financial system had developed many of the characteristics of
modern capitalism: markets flourished because Roman law allowed
the free transfer of property, money was lent out at interest,
money changers dealt in foreign currencies, and payments across
the Roman territories could be made by bankers' draft. Capital
concentrated in Rome, as it later did in Amsterdam, London, and
New York. The idea of credit had also developed, along with a
primitive form of insurance for ships and other forms of property.
The people of Rome exhibited a passion for the accumulation of
wealth, matched by an extravagance in its display and consumption.
Gaming was common.

In Latin, the word speculator describes a sentry whose job it was
to "look out" (speculare) for trouble. The financial speculator in
ancient Rome, however, was called quaestor, which means a seeker.
Collectively, speculators were sometimes referred to as Graeci or
Greeks. Their meeting place was the Forum, near the Temple of
Castor, where "crowds of men bought and sold shares and bonds
of tax-farming companies, various goods for cash and on credit,
farms and estates in Italy and in the provinces, houses and shops in
Rome and elsewhere, ships and storehouses, slaves and cattle."
The Roman comic playwright Plautus describes the Forum as
peopled with whores, shopkeepers, moneylenders, and wealthy
men. He identifies specifically two unsavoury groups; the first lot he
describes as "mere puffers" and the second as "impudent, talkative,
and malevolent fellows, who boldly, without reason, utter
calumnies about one another." In this description, we find the
originals of the bulls and bears of later stock markets.

The Roman state contracted out many of its functions, from tax
collecting to temple building, to societies of capitalists, known as
publicani. Like modern joint-stock companies, the publicani were
legal bodies independent of their members whose ownership was
divided into partes, or shares. They had executive managements,
produced public accounts (tabulae), and held occasional meetings
of shareholders. Many were considerable concerns, employing tens
of thousands of slaves. Shares came in two sorts: larger executive
shareholdings of the great capitalists, known as socii, and smaller
shares, called particulae. The manner of dealing in unregistered
particulae shares was informal, resembling the modern over-the-counter
stock markets. The publicani maintained a system of
couriers throughout the Roman territories in order to gather information,
enabling them to calculate how much to bid for contracts
at auction and how much shares in going concerns were worth.

No evidence remains of the prices for which partes sold, and
there are no descriptions of stock market behaviour. We do know,
however, that shares fluctuated in value. When the Roman consul
Vatinius was accused of corruption he was asked: "Did you extort
shares, which were at their dearest at the time ... ?" Cicero
referred to partes carissimas (most expensive shares) and claimed
that buying shares in public companies was seen as a gamble which
conservative men avoided. Shares in the publicani did not attract
only politicians and large capitalists. Polybius, the Greek chronicler,
describes a widespread popular interest in share ownership:
"All over Italy," he writes, "an immense number of contracts, far
too numerous to specify, are awarded by the censors for the construction
and repair of public buildings, and besides for the collection
of revenues from navigable rivers, harbours, gardens, mines,
landsin a word every transaction which comes under the control
of the Roman government is farmed out to contractors. All these
activities are carried on by the people, and there is scarcely a soul,
one might say, who does not have some interest in these contracts
and the profits which are derived from them" (my italics). Describing
the last years of the Republic, Petronius Arbiter wrote that
"filthy usury and the handling of money had caught the common
people in a double whirlpool, and destroyed them ... the madness
spread through their limbs, and trouble bayed and hounded them
down like some disease sown in the dumb flesh." Perhaps these are
descriptions of the first speculative "mania," although the evidence
is too weak to prove the case.

The Roman publicani withered under the Empire, but speculation
in property, commodities, and currencies continued. After
fiduciary moneyi.e., money created by government decree which
has no intrinsic value but depends on public confidencewas
introduced in the third century A.D., currency crises became common.
The city council of Mylasa in Caria (in modern-day Turkey)
complained that as a result of the speculative hoarding of specie,
"the very security of the city is shaken by the malice and villainy of
a few people, who assail and rob the community. Through them
speculation in exchange has entered our marketplace and prevents
the city from securing a supply of the necessities of life, so that
many of the citizens and indeed the community as a whole, suffer
from scarcity." It is a very modern lament.

Financial Speculation in the Early Modern Period

The culture of medieval Europe was inimical to financial speculation
for both practical and ideological reasons. The feudal system
dispensed with many financial transactions of the Roman world,
replacing cash dealings with payments in kind. Medieval schoolmen
revived the Aristotelian notion of a "just price," following the
teaching of St. Thomas Aquinas, who declared that it was unjust
and unlawful to "sell dearer or buy cheaper than a thing is worth."
Usury was also condemned. The pursuit of profit was viewed as
both morally corrupting and dangerous to the commonwealth. St.
Augustine considered the unlimited lust for gain, appetitus divitarum
infinitus, as one of the three principal sins, alongside the
craving for power and sexual lasciviousness. In his City of God,
there was no place for the speculator. When famine threatened, the
medieval state intervened to supply food, and speculative hoarding
was made illegal. These strictures against profiteering and speculation
continue to resonate down the ages. When contemporary
politicians rise to condemn the pernicious actions of speculators,
they perpetuate unconsciously the Scholastic prejudices of medieval
monks.

In the later Middle Ages, several Italian city-states began issuing
marketable government securities. In Venice, government securities
were traded from the middle of the thirteenth century at the
Rialto. Speculation seems to have taken its normal course: In 1351,
a law was introduced against rumours intended to sink the price of
government funds; in 1390, 1404, and 1410, there were repeated
attempts to prevent the sale of government obligations on deferred
terms (i.e., bond futures); the Doge and members of the Ducal
Council also tried to outlaw "insider trading." State loans also were
traded at Florence, Pisa, Verona, and Genoa in the fourteenth century.
The Italian city-states farmed out the collection of taxes to
monti, companies whose capital was divided into tradable shares
(luoghi). These early joint-stock companies appear strikingly similar
to the Roman publicani.

The great fairs of Northern Europe, which had their origins in
the fora and Bacchanalia of ancient Rome, enjoyed exemption
from many of the medieval restrictions on trade and finance. They
became, in effect, prototype stock markets. At the Leipzig fairs,
shares in German mines changed hands in the fifteenth century; at
the St.-Germain fairs near Paris, which opened after Lent, municipal
bonds, bills of exchange, and lottery tickets were traded.
Antwerp, with its two lengthy annual fairs in spring and autumn
and yearlong permission of free trade, was described as a "continuous
fair." In the middle of the sixteenth century, the city gave a
home to the first settled bourse, so named after a gathering of merchants
at the Hôtel des Bourses in neighbouring Bruges.

From the middle of the sixteenth century, there is more detailed
evidence of speculative market conditions. The financial markets
had developed a collective notion of credit (the so-called ditta di
borsa) and bond prices reflected an anticipation of future events
such as defaults. Market manipulation appeared in the 1530s,
when a syndicate organised by the Florentine Gaspar Ducci led an
attempt to suppress prices in the Lyons market (what we would
now call a "bear raid"). In the middle of the 1550s there suddenly
appeared in the markets of Antwerp and Lyons a speculative
enthusiasm for royal loans, which came to an abrupt end when
King Henry II of France suspended payments on his debts in
1557.

On an individual level, we find an Antwerp commodity trader,
Christoph Kurz, puzzling at the periodic tightness and ease (strettezza
and largezza) of money in the market. He believed that
future prices were divinely ordained and discoverable through
astrological observation. People bought when prices were at their
highest, because "the upper influences so blind the natural reason
with affections or desires." Like a modern technical analyst, Kurz
rose early in the morning, surrounded "with work as a man in the
ocean with water, for our astrologers aforetime have written much,
but with little reason; wherefore I trust not their doctrines but seek
mine own rules, and when I have them I search in the histories
whether it hath fallen out right or wrong ..." Later Kurz forsook
the market and enjoyed great professional success as a political
astrologer, forecasting among other things the imminent extinction
of the papacy.

The development of the capital markets in France and Flanders
was interrupted in the second half of the sixteenth century by the
Wars of Religion and the Revolt of the Netherlands and a succession
of state bankruptcies. After 1557, Lyons went into decay as a
financial centre. The sack of Antwerp by Spanish troops in 1585
led to the permanent decline of its bourse. Amsterdam benefited at
the expense of Antwerp, as thousands of Protestant and Jewish
refugees fled the Spanish, bringing capital and trading skills to the
Netherlands. The stimulus provided by these immigrants has led
historians to refer to the Dutch "economic miracle" of the 1590s.
By the early seventeenth century, the Dutch Republic was the most
advanced and thriving economy in Europe. Its merchants encircled
the globe, buying wood in Norway, sugar in the West Indies,
tobacco in Maryland, investing in forges in Wales or estates in Sweden,
farming the Russian Tsar's export monopolies, and supplying
Spanish America with slaves.

Although the Dutch did not invent the institutions and practices
of financial capitalism such as banking, double-entry bookkeeping,
joint-stock companies, bills of exchange, and stock markets, they
brought together and established them on a secure basis in a mercantile
economy organised around a highly evolved profit motive.
In 1602, the United East India Company, the first joint-stock company
to receive an official government charter, was established with
a monopoly on Eastern trade. Nineteen years later, the Dutch West
India Company was founded to exploit commercial opportunities
in the Americas. Europe's first central bank, the Amsterdam Wisselbank,
an institution derived from the Casa San Giorgio in
Genoa, was established in 1609. Highly conservative in its operations,
the Wisselbank paid no interest on deposits, issued notes only
against its gold holdings, and made no loans. Yet its existence
allowed Dutch merchants across the globe to settle their accounts
bills in a universally accepted currency. The Dutch city authorities
raised funds through bond issues and lotteries which attracted
great popular interest. By the early seventeenth century, capital
from across Europe was invested in a variety of Dutch financial
assets, from property to annuities, municipal bonds, bills of
exchange, and medium-term loans. Amsterdam was not simply a
great entrepôt, it was the financial capital of the world.

All manner of financial products and services were traded on the
Amsterdam Exchange (a New Exchange was founded in 1610):
"commodities, current exchange, shareholdings, maritime insurance ...
[it was] a money market, a finance market, [and] a stock
market." Naturally, the Exchange became a crucible for speculative
activities. Futures contractsagreements to deliver or take
delivery of a commodity at a fixed price some date in the futurewere
common. Since the previous century, futures had been traded
in a variety of commodities, including grain, herring, spices, whale
oil, sugar, copper, saltpetre, and Italian silks. In the early seventeenth
century, they became available in the actions (shares) of the
East India Company. Speculators could also take out loans on
shares at up to four-fifths of their market value (what Americans
later called "margin loans"). Stock optionswhich gave the buyer
the right, but unlike the futures contract not the obligation, to buy
or sell shares at a fixed price during the contract periodwere also
traded on the Exchange. Later in the century, ducaton shares in
the East India Company were introduced; valued at a tenth of the
highly priced ordinary shares, they enabled less wealthy speculators
to play the market. Futures, options, and ducaton shares are
all examples of what we call derivatives, namely financial contracts
which derive their value from an underlying asset, such as a share.
Together with stock loans, they created the opportunity for financial
leverage, so that small rises in share prices brought larger percentage
gains to speculators (with small price declines producing
the opposite effect). . . .